Use the following information for the next five questions. Suppose that in a well- functioning competitive...
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Use the following information for the next five questions. Suppose that in a well- functioning competitive market, demand is given by the equation P = 1.050 - 0.5Q, private-cost supply is given by the equation P = 50 +0.5Q, marginal external cost is 200, and social-cost supply is given by the equation P = 250+ 0.5Q. (a) Solve for the equilibrium price and quantity if firms are allowed to freely pollute. (b) Calculate the social welfare in this situation (consumer and producer surplus that market participants receive minus total external cost). (c) Solve for the equilibrium price and quantity if a Pigouvian tax is imposed. (d) Calculate the social welfare with a Pigouvian tax (assume that the tax revenues are used to compensate those harmed by pollution, or to clean up). (e) By how much is welfare (as measured by gains from trade) enhanced by the use of a Pigouvian tax? Use the following information for the next five questions. Suppose that in a well- functioning competitive market, demand is given by the equation P = 1.050 - 0.5Q, private-cost supply is given by the equation P = 50 +0.5Q, marginal external cost is 200, and social-cost supply is given by the equation P = 250+ 0.5Q. (a) Solve for the equilibrium price and quantity if firms are allowed to freely pollute. (b) Calculate the social welfare in this situation (consumer and producer surplus that market participants receive minus total external cost). (c) Solve for the equilibrium price and quantity if a Pigouvian tax is imposed. (d) Calculate the social welfare with a Pigouvian tax (assume that the tax revenues are used to compensate those harmed by pollution, or to clean up). (e) By how much is welfare (as measured by gains from trade) enhanced by the use of a Pigouvian tax?
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a P 1050 05Q P 50 050 P 250 05Q P 100 Q 100 b Social welfare Consumer surplus Producer surplus External cost Consumer surplus 1050 05Q 1050 1050Q 025Q 1102500 1050000 62500 62500 15625 Producer surplu... View the full answer
Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
Posted Date:
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